Muhammad Menhas assumed the position of Deputy Chief Executive Officer and Country-Head of Pak-Qatar Family Takaful in January 2013. Before joining Pak-Qatar Family Takaful, he served as the Area-Director at Jubilee Life Insurance Company (Pvt) Ltd. He is a graduate in Business Administration with a specialization in Marketing.
Menhas started his career as a Marketing Manager at a reputable business house operating in the petroleum sector and later joined the Life Insurance Industry in the beginning of 1998. He has over 20 years of experience with a diversified portfolio in the field of insurance. He is one of the most accomplished business-leader in the insurance sector. BR Research discussed insurance and Takaful affairs with Menhas. Below are edited excerpts of the conversation.
BR Research: The Shariah compliant financial services industry has taken off in the last decade or so, particularly the banks. Has the Takaful industry growth kept pace with the overall change?
Muhammad Menhas: Takaful is still relatively new in the market, and Pak Qatar was the pioneer in Pakistan's Islamic insurance industry. We got the license in 2006 and became operational in 2007. The real challenge was to create awareness regarding the differentiating factors of Takaful as compared to conventional insurance.
The other big challenge in the industry overall, which is not talked about much, is the dearth of quality human resource. Consider the fact that a country of Pakistan's size has no more than 15 actuaries at present. Then the Takaful industry itself has more layers of compliance and audit, than the conventional side, which requires more relevant expertise.
BRR: How challenging it was being a new company in a new sub-sector, with still evolving sets of rules and regulations?
MM: It was definitely challenging, as the investment opportunities in Takaful are very limited, and the penetration is very low. The good thing with Pak Qatar is that our board is not looking for quick returns; it instead views the whole venture as a long-term investment with an aim to broaden the Islamic finance ecosystem.
Our prime focus at the start was to build products that could at least match those of the rivals in the conventional industry, if not better than theirs. We were able to match our products with those of the conventional industry, in the first phase. We soon realized that the customers were looking for more clarity in terms of uniqueness of our products and the Shariah compliant aspect of it.
We then started building a portfolio of products that offered better returns than the conventional counterparts. We now proudly sell products that none of our competitors can claim to have. We were the first company to design a product with a 100 percent allocation to customers, without any deduction, securing the principal amount.
BRR: What is the overall market size of the Takaful industry, what is your share and what has been the growth pattern over past two to three years?
MM: The growth pattern of the overall insurance industry is 18-20 percent in the top-line. Ever since bancassurance gained momentum, the growth has been in high double digits, in which the big banks have a major contribution.
The share of Takaful in the life insurance pie is around 16-18 percent, including the banking window insurance operations. Takaful's rate of growth has been way faster than the conventional industry growth, much on the lines of Islamic banking growth in its early years.
BRR: How challenging is it for the Islamic insurance industry to work on the awareness front, considering that you do not have as deep pockets as the Islamic banks have?
MM: We have worked extensively on creating awareness, but it remains a daunting task. But we deliberately try and are very specific on awareness, to distinguish our self from the perception issues in the market. We have joined hands with educational institutes, and have specific courses along with awareness sessions. Universities are now teaching Takaful as a major subject, and we have helped in the curriculum development phase.
Secondly, we have the agency model which is very helpful in creating awareness. The model works across the country, and remains our primary focus. We induct agents, train them, and then approach customers through them. Our agents are different from others in terms of approach - as we have trained them to address specific queries with clarity of approach.
Seeing our success, and the awareness that we have managed to create, even the conventional insurance companies have now started their window Takaful operations - which is testament that our awareness efforts have yielded some results.
BRR: What is the number of approved products in Takaful industry at present? And how does Pak Qatar differentiate itself from the crowd in terms of product presentation?
MM: All Takaful companies have an average of seven to eight products on offer, but there is one key product for each segment around which the core revolves. The policy structures can vary from product to product, in terms of maturity profiles, rates, and value addition. Secondly, there are corporate level group health and group life policies, which are by and large similar to the conventional products, minus the Shariah compliant aspect.
Thirdly, there is the product tied to banking customers, which is slightly different from that of individual customers. The reason being that a bank customer ideally prefers one-window operation, which we cater to.
BRR: How many banks are you partnering with in the bancassurance category?
MM: We have arrangements with almost all major banks, except for HBL. For Takaful bancassurance, operating with an Islamic bank is not mandatory, which widens our scope.
BRR: Where do you stand in terms of market share?
MM: HBL is the biggest player with around 50-60 percent share of bancassurance. Of the remaining, our share would be less than 10 percent. But it has come down in the last two years, because of the window operations, as some of our Takaful customers have shifted to the window operations.
Earlier, Islamic banks could only deal with Takaful products of the Takaful industry - but things have changed and now even the Islamic banks can deal with window operations of other players, which caused a hit to our market share.
BRR: Is bancassurance the biggest distribution channel for Pak Qatar?
MM: The agents remain the biggest channel of distribution for us, with over 1600 feet on ground, across the country. We have more than 70 branches, with operations spread over more than 60 cities.
BRR: How does the Takaful industry compare in terms of insurance premium with the conventional insurance players?
MM: Our individual life products are much better in terms of premium than our conventional counterparts. All of it varies depending on the ticket size, market segment, tenure, and the policy type. The average premium size is pretty much comparable to the overall industry as well.
BRR: Is there any telling difference in the claim procedure of your products versus that of the conventional ones?
MM: That is a very pertinent question, the answer to which will help people understand the Takaful model as well. In conventional insurance, the company takes money from the customer which is divided into two parts. One part goes into a company account, and the other one goes to the investment account. The claims are paid through the company account. Whatever is left at the end of the year goes to the company as underwriting profit.
In the case of Takaful, one portion goes to the investment account, whereas the treatment of other is significantly different. This goes to a Waqf pool as a contribution, on which the whole Takaful model is based. The company manages this pool, charging management fee. The difference is that whatever is left after the settlement of claims is not part of company's profit, it is instead returned to the customers. This is the biggest difference between conventional insurance and Takaful.
In conventional, you would ideally want to save more and more so as to increase the underwriting profits. In case of Takaful, the idea is to pay as much claims as possible, as the company has no right over the leftover money, which is beneficial for the company from a marketing perspective. This is where the competitive edge of Takaful over conventional insurance lies.
BRR: Does that mean the claim settlement procedure for Takaful is also swifter, as there is more incentive to pay claims than delay it?
MM: Definitely. Our standard claim settlement average time is roughly 15 to 20 days.
BRR: Is there an internationally established Takaful model you follow or was it drafted solely from Pakistan's perspective?
MM: There was an established Modraba model, but that was a bit different. The Wakala Waqf model has been introduced by the renowned scholar and Chairman of our Shariah Board, Mufti Taqi Usmani. This model has received immense popularity and we have been approached by different countries, because of the transparency of this model over others. The procedures and guidelines, practiced throughout Pakistan, were originally drafted by Pak Qatar, and are now being replicated across the local Takaful industry.
BRR: In terms of consumer segmentation, is corporate your biggest segment?
MM: In terms of overall corporate organizations, we have more than 950 customers. We have three sales channels: corporate, bancassurance, and agency model ensuring physical penetration. Bancassurance used to be our fastest growing distribution channel, which has now been taken over by the agents with around 40 percent growth recorded last year.
BRR: Are your hands tied when it comes to Shariah compliant investment avenues available, as in the case with Islamic banks?
MM: Yes, unfortunately, the investment avenues available are very limited. At times, the fund is massive, but opportunities are very limited, which is a challenge. In order to balance this, we have taken a cut on our own fee and returns, to stay competitive. We can invest in real estate, and we are thinking on investing on those lines as well - to further diversify our portfolio.